Competition, CEO problems and slumping sales mean TGT and WMT stock are both in deep trouble

Thanks to weak spending from its core customer base and sliding sales, WMT stock is down about 6% YTD despite a rising market. And thanks to a much publicized data breach, TGT stock is down by about the same amount.

But according to a recent note by Goldman Sachs (GS), the pain for Target and Walmart is only beginning.

Here’s why the investment bank thinks TGT and WMT stock are both doomed:

Sell Walmart and Target Stock Now

According to Goldman, “Consumers appear more focused on some combination of value and convenience,” and that means the big-box stores lose on both fronts.

The obvious pressure for these retailers is rise of online retailers like Amazon (AMZN) and eBay (EBAY) allow for rapid shipping of sometimes hard-to-find goods directly to your door at competitive prices. Considering that Walmart, in particular, only operates in rural areas or suburban wastelands, that’s not a very convenient option for many urban consumers.

But worse, as Dan Burrows writes, “the recession never really ended” for companies like McDonald’s (MCD) and Walmart that cater to lower-income consumers. Family finances still are very tight at the bottom of the socioeconomic ladder, and that’s holding back growth prospects for WMT and TGT stock.

Furthermore, competition from discounters like Dollar General (DG), Dollar Tree (DLTR) and DLTR acquisition target Family Dollar (FDO) continues to eat into sales at big-box stores.

TGT and WMT stock also are suffering from leadership vacuums right now; new Walmart CEO Greg Foran just took over in July, and Target just named a new CEO in PepsiCo (PEP) veteran Brian Cornell after its previous leader resigned amid the fallout of the data breach.

Walmart’s sales have declined for five straight quarters, leading to shakeups at the executive level.

The icing on the cake is that drugstores like CVS (CVS) and Walgreen (WAG) are ramping up their product lines, Costco (COST) continues to push margins even lower in a never-ending quest for low prices, and other retailers of all shapes and sizes are fighting tooth and nail for every penny.

The good news is that TGT and WMT stock both pay decent dividends, at 3.5% and 2.6%, respectively. Both also have a ton of scale and stability that ensures they aren’t going bankrupt anytime soon.

But as for sales growth and significant share appreciation? Don’t hold your breath … TGT stock and WMT stock are in trouble and should be avoided until signs of life appear at either of these battered retail giants.